Cyprus parliament rejects levy, bailout in doubt

The Cypriot parliament has unanimously rejected the unpopular tax on bank deposits, a key term in last weekend's bailout of the island by the 'troika', as the grouping of the European Union, International Monetary Fund and the European Central Bank are known.

The 56-seat parliament voted with 36 votes against, 19 abstentions and no votes in favour. There was one absentee.

Robert Kyprianou, a Citywire Money columnist, comments.

'The President’s party called for Parliament to unite in supporting the President in negotiating a ‘third way’ with the troika. Other parties were, especially on the left, more aggressive in their tone on how to deal with the troika (sending clear messages about what the Cyprus people would accept etc.)

'Overall the tone was highly emotional and at times very angry. The President has a clear mandate to renegotiate.

'The ball is in the troika’s and European Central Bank’s court. The problem is that a) the damage has been done to the country’s economy and the banking system b) the line has hardened in Cyprus on any troika proposal. Trust and confidence has been broken.'

The euro slipped further against the dollar, down 0.7% on the day at $1.2860.

FTSE falls again as UK flies cash to stricken Cyprus

17.50: Markets and the euro fell for a second day as the crisis in Cyprus showed no sign of ending with the RAF flying cash to the island.

The FTSE 100 closed 16 points, or 0.2%, to 6,441 with Reuters reporting the RAF had flown €1 million (£860,000) in cash for British troops in case ATMs and debit cards stop working on Crete.

In a statement the Ministry of Defence said the money was 'a contingency measure to provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely.'

Cyprus in limbo

European markets extended their losses as it looked increasingly likely the Cypriot parliament would reject eurozone plans to tax deposits on the island by between 6.75% and 9.99%. The delay means the island's banks are expected to remain shut until Friday. Meanwhile Cyprus' finance minister Michael Sarris denied reports he had resigned. 

The FTSE Eurofirst 300 index shed a further five points, or 0.4%, to 1,194 but Italy and Spain bore the brunt of the losses as fears remained that a bank run in Cyprus could spread contagion through the economically challenged southern Meditteranean.

Italy's FT MIB index fell 1.5% or 253 points to 15,670 while Spain’s Ibex dropped 2.2% or 186 points to 8,321.

Spanish 10-year government bonds were sold off nudging its borrowing costs higher above 5%. German bunds, by contrast, fell to 1.23%, underlining the two-speed nature of the eurozone.

On currency markets the euro slumped 0.6% to 85.24p against the pound and by 0.5% to $1.2889 against the dollar.

Strong housing report ignored in US

Unease over what a default by Cyprus could unleash worried US investors. Despite encouraging housing figures the Dow Jones Industrial Average slid 42 points or 0.3% to 14,409 and the S&P 500 dropped 13 points or 0.8% at 1,534.

Data showed new permits for building homes rose to their highest level since 2008 last month, a sign that the recovery in the US housing market is gaining speed and that the underlying strength of its economy is good.

This, allied with the prospect of a stronger US dollar is why fund managers and investment banks are increasingly positive about the US stock market.

Argonaut Capital Partners European fund manager Olly Russ underlined the gravity of the situation in Europe, however. 'The EU’s resolution to the Cyprus situation risks transmitting far greater risk to the eurozone banking system. Despite the EU claiming that Cyprus is a special case, the precedent has now clearly been set that – in a massive banking crisis – depositors can expect to get bailed-in,' Russ said.

'This moves the debate on from previous worries – principally around whether bond holders would get bailed in. Now, in an almost unheard of move for a Western nation, depositors are compelled to join in any rescue, rather than the broader taxpayer.'

Rio caution hits miners

Rio Tinto (RIO.L) dragged the FTSE 100 lower, falling 5.2% or £1.70 to £31.24, after warning lower Chinese demand for steel would hit iron ore prices for the rest of this year and perhaps beyond.

Other miners followed suit with Evraz (EVRE.L), BHP Billiton (BLT.L), Fresnillo (FRES.L) and Anglo American (AAL.L) and Eurasian Natural Resources Corporation (ENRC.L) falling between 2.9% and 4.5%.

Weir (WEIR.L), the pumps and valves manufacturer that supplies the mining industry, tumbled 4.4% to £23.36.

By contrast, BAE Systems (BAES.L) led the FTSE 100, rising 2.5% to 392.4p as Investec raised its target price to 375p from 325p. The defence contractor pleased investors by revealing in its annual report that it had frozen the pay of chief executive Ian King and two other top executives, after profits fell last year. 

J Sainsbury (SBRY.L) gained 1.7% to 371.75p after its fourth quarter trading statement beat expectations. The UK’s third-largest supermarket chain said like-for-like sales excluding fuel had risen 3.6% in the 10 weeks to 16 March, helped by growth in online shopping and in convenience stores.